Realizing the Benefits of Biosimilars: Overcoming Rebate Walls

Executive Summary

Issue: Rebate walls, also called rebate “traps,” occur when a drug manufacturer pays list price discounts to health plans or pharmacy benefit managers (PBMs) based on meeting market share targets. While such practices might seem to have the short-term effect of lowering net costs for a particular drug or biologic, they also have the effect of blocking patient use of competing, lower-priced products. Rebate walls are the result of an incumbent drug manufacturer leveraging its high market share. The use of rebate walls benefits the incumbent and can cause plans or PBMs to financially benefit from purchasing exclusively from the originator, deterring investment by potential biosimilar entrants and consequently diminishing market entry and competition over time that could help lower net costs. Rebate walls are particularly challenging in the context of biosimilar competition: while biosimilars are as safe and effective as the originator biologic and offered at a reduced list price, demand for products has been slow to shift from incumbents, especially if clinicians and patients do not regard the products as clinically equivalent. The result can be harm for patients and the health care system, through reduced access to drugs that are just as safe and effective but cost less. Furthermore, growth in rebates has been linked to a growth in list prices, and highly rebated products are often accompanied by higher out-of-pocket costs for patients. This issue brief examines the potential anticompetitive implications of rebate walls, categorizes their use and impact, and offers solutions to increase biosimilar uptake and reduce net prices and patient out-of-pocket costs in the U.S.